Reports

The CCMC’s inquiries and other research into banks’ compliance with the Code of Banking Practice aim to encourage changes in industry behaviour where we’ve identified room for improvement, and highlight good practice.

November 2018 Compliance with the Code of Banking Practice 2017–18

The CCMC said these self-reported breaches of the Banking Code affected more than 3.4 million people, costing them more than $95 million. However, these impacts are likely to be significantly understated.

The number of breaches was almost 10% less than last year, but the report said this was unlikely to reflect improved compliance. The CCMC remains concerned about banks’ inadequate monitoring and reporting processes.

The report said that banks too often failed to proactively compensate customers affected by a breach. For the most part, compensation was paid to customers only after a directive from ASIC or the Financial Ombudsman Service (now Australian Financial Complaints Authority). This was particularly evident when banks breached their responsible lending obligations.

Some banks that continued year after year to report low breach numbers could not demonstrate robust compliance monitoring processes. One said its breaches were immaterial and did not warrant reporting; another acknowledged that while breaches had probably occurred, it could not explain why these had not been reported to the CCMC.

The inquiry made 14 recommendations for improvements in the way banks help customers overcome their financial difficulty. The CCMC has set expectations that banks should:

train all customer-facing bank staff, including lending staff, to be able to identify customers in financial difficulty

adopt flexible approaches to assistance, considering and providing long term assistance where it needed and appropriate, and

promote a culture of non-judgement and compassion when assisting customers.

Job-related issues, usually reduced income, reduced working hours or unemployment, were the main reason for people seeking financial difficulty assistance (42% of the total). Other reasons included accidents, illness (including mental illness), family separation and family violence. Banks granted about seven in ten requests for assistance a year.

In 2015, the CCMC conducted an initial own motion inquiry investigating banks’ compliance with financial difficulty obligations in the 2013 Code of Banking Practice. This follow-up inquiry was conducted partly to help banks transition to a new Code, developed by the Australian Banking Association, which comes into effect on 1 July 2019.

June 2018 Breach Reporting Inquiry

Overall, the Committee was encouraged by the banks’ responses to its inquiry into breaches that occurred during 2016­–17. It did, however, identify several areas for improvement.

When reporting to the CCMC, banks identified human error as the main cause of non-compliance. It was responsible for 98% of breaches. In response, the CCMC suggested that banks should examine ways to develop systems and system controls that prevent repeated errors.

The inquiry also found that for around one-quarter (26%) of breaches, banks did not report any associated corrective action. The CCMC
expects banks to remediate customers appropriately and to record and report all corrective actions.

The most commonly breached Code obligation was provision of credit, accounting for 42% of all breaches. Other major breach categories were privacy and confidentiality (28%) and debt collection (21%).

This inquiry was part of the CCMC’s ongoing strategy to improve compliance by banks.

October 2017 Direct debits

The CCMC found that more than half (54%) of bank staff tested gave customers incorrect responses to questions about cancellation of direct debits. It found that contact or call centre staff were more likely to offer compliant information than those in bank branches. The report was based on a small-scale ‘mystery shopper’ study, conducted in 2017, of 15 bank brands representing 12 banking groups.

The study follows previous research in 2008, in which 80% of staff responses regarding cancellation of direct debits were non-compliant, and 2011, when results improved slightly (66% non-compliance).

The CCMC will revise and intensify its compliance monitoring and reporting on banks’ direct debit obligations. The report makes seven recommendations to banks about cancelling direct debits including clear and simple guidance on bank websites, exploring ways to use online banking, and vastly improved communication and training of frontline bank staff.

July 2017 Special Report: Access to Banking Services by Indigenous Customers

Clause 8 of the Code of Banking Practice (the Code) sets standards of good practice for subscribing banks regarding customers in remote Indigenous communities.

The CCMC has brought together compliance and other data to share some of the work major Australian banks are doing, both individually and in partnership with the industry and other stakeholders, to increase Indigenous financial inclusion, financial literacy and cultural awareness.

The CCMC’s aim is to share these examples of good practice with all Code-subscribing banks so that the industry as a whole can continue to improve their service to Indigenous customers.

January 2017 Provision of credit Inquiry

This inquiry examined Code-subscribing banks’ compliance with their provision of credit obligations under clause 27 of the Code of banking Practice.

The Inquiry focused on unsecured credit and the CCMC found that banks generally have robust, and often complex, processes in place to assess applications for unsecured credit in compliance with the Code.

Information provided to the Inquiry suggests that the majority of applications for unsecured credit are processed using automated systems. The CCMC has stated that up-to-date information regarding a customer’s financial position should be incorporated into the credit assessment, whether processed manually or by an automated system. The CCMC considers that having a full and current picture of a customer’s financial circumstances is fundamental to complying with the Code obligations.

The CCMC made nine recommendations in its Report, which:

support Code compliance, and

can assist banks to continuously work towards improving standards of practice and service in the banking industry as anticipated by clause 3.1(a) of the Code.

November 2015 Financial difficulty Inquiry

This inquiry examined Code-subscribing banks’ compliance with their financial difficulty obligations under clause 28 of the Code of Banking Practice. The CCMC found that all subscribing banks have in place procedures to try to help customers overcome their financial difficulties with credit facilities they have with their bank, as required by the Code. In addition, banks have confirmed it is their policy to engage actively and co-operatively with customers to ensure effective outcomes.

Overall, consumer advocates confirmed that banks have made improvements to the way in which they deal with customers experiencing financial difficulty, however issues still occur for both individual and small business customers, particularly where a customer’s situation is unique or requires longer-term solutions.

As such, the CCMC identified a number of ways in which banks could increase their level of compliance with the Code.

October 2013 Chargebacks Follow-up Inquiry

This inquiry examined whether banks had improved their practices regarding ‘chargebacks’ since our 2011 inquiry. A chargeback describes a process whereby a bank, at the request of a customer, can reclaim a debit on a credit card from a merchant’s bank. We found that banks which had implemented recommendations from our 2011 inquiry had improved compliance rates. We encouraged all banks to consider how best to improve information provided to consumers about their rights, the chargebacks dispute process and where to find other information about Code obligations in this area.

June 2013 Guarantees Inquiry

This inquiry examined banks’ compliance with their pre-contractual obligations before accepting a Guarantee to secure a credit facility. We found that banks had appropriate policies and procedures in place to meet their code obligations. However, discussions with financial counsellors demonstrated that there could be considerable impact on consumers when these procedures were not followed. We recommended that banks improve the disclosure of general warnings within pre-contractual documentation, and refine the way ‘vulnerable’ potential guarantors are identified and treated.

July 2012 Foreign Currency Loans Inquiry

This inquiry examined whether banks were meeting their code obligations when providing customers with foreign currency loans – a loan facility that allows for a sum of money to be borrowed in Australia in a currency other than Australian Dollars.

We found that banks had met their obligations by providing a general warning in writing of the risks arising from exchange rate movements, and information about possible risk mitigation mechanisms, before granting a foreign currency loan contract. However, two banks provided the required information at the time the Letter of Offer was produced, without previously discussing risks with customers. We recommended that warnings be given before any formal bank offer for the foreign currency loan so that customers have sufficient time to consider and mitigate any risks, and make informed decisions.

May 2012 Direct Debits Follow up Inquiry Report

A customer’s ability to cancel direct debits at their bank is a powerful safeguard, especially for customers in financial difficulty. This inquiry used ‘shadow shopping’ exercises to determine if banks had improved the information provided to customers about the cancellation of direct debits following our 2008 inquiry. We found that the level of compliance had not improved since the first inquiry, demonstrating that banks must be conscientious in providing training and information to staff in respect of direct debits. Banks must also have sufficient quality assurance and monitoring in place to identify and correct non-compliance.

January 2012 Chargebacks Inquiry Report

This inquiry examined banks practices regarding ‘chargebacks’ – a process whereby a bank, at the request of a customer, can reclaim a debit on a credit card from a merchant’s bank. We found that banks had received more than 90,000 chargeback requests in March 2011 – the sample month – with a corresponding low number of complaints. We also identified areas of good industry practice and areas for improvements within banks.

November 2011 Account Suitability Inquiry Report

This inquiry was based on research undertaken by students enrolled in the University of Melbourne’s business consulting subject in the Faculty of Business and Economics. These students reviewed banks’ interpretation and compliance with clause 14, which requires banks to provide low income earners with details of accounts that are suitable to their needs and requirements. The inquiry concluded that banks have strong policies and procedures in place in relation to customers who may be eligible for basic bank accounts. Mystery shopping exercises suggested that bank staff had good knowledge of account products and features.

September 2010 Visibility and Access Inquiry Report

This inquiry examined whether banks were managing their commitment to individual and small business customers by providing visible and accessible web-based information about the Code, and internal dispute resolution (IDR) and external dispute resolution (EDR) processes. All websites we reviewed complied with the basic requirements and met the minimum standards regarding visibility and access to Code, IDR and EDR information. Only one website did not meet basic requirements and standards.

June 2009 Direct Debits Inquiry Report

This inquiry examined whether banks were meeting their promise to individual and small business customers under clause 19 regarding their ability to cancel direct debits via the bank. We found that while banks had appropriate policies and procedures in place, 8 out of 10 ‘shadow’ shoppers received incorrect or partially incorrect information. We met with all banks involved in the review, which have since undertaken a range of activities to remedy areas of non-compliance.

February 2008 Inquiry into bank compliance with Clause 29 of the Code of Banking Practice

This inquiry examined banks’ compliance with clause 29, which required banks and their collection agents to comply with the Australian Competition and Consumer Commission’s guideline Debt Collection and the Trade Practices Act (June 1999). Responses provided by all banks suggested a strong commitment to compliance, however, on closer examination we found that some banks’ monitoring systems were failing to identify breaches of clause 29, and that training programs for staff on debt collection obligations could be improved.

March 2007 Account suitability Inquiry Report

This inquiry examined banks’ compliance with clause 14, which requires banks to provide low income earners with details of accounts that are suitable to their needs and requirements. We found that banks were addressing the needs of low income and disadvantaged customers, both through the products available on the market and in directing these customers to appropriate products. Banks generally assessed customer needs before recommending an account type. It was also evident that staff training focused on how to meaningfully assess customer needs and develop a high level of product knowledge.

December 2005 CCMC Inquiry into Bank compliance with clause 25.2 of the Code (Financial Difficulty)

A key provision of the Code requires banks to try to help customers who are experiencing financial difficulties with any credit facility they have with the bank. This inquiry into whether banks were meeting their obligations to customers in financial difficulties found the banks understood their obligations and were making genuine and largely successful attempts to meet them.